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Through the Looking Glass, Midterm Report

Five years ago I wrote a thought piece called ‘Through the Looking Glass’ to provoke non-linear thinking and foster debate on the possible future direction of the financial services industry and market structures. (I later turned it into a short video called AmazonBay.) It was a retrospective told from the point of view of an observer in 2015. It was never meant to be taken literally – in particular with respect to (most of) the specific corporate mergers – rather I used these as a concise and dramatic way of highlighting the possible or even probable consequence of the deep secular currents that I felt would inevitably work to reshape the landscape.

(December 2015:) …The global securities and investment banking groups that dominated the market in the last century are now extinct. In their place we have an intelligent galaxy of new specialist advisory, investment management, algorithmic software and consulting firms networked with a universe of powerful transaction facilitation exchanges. Banks now exist only as giant regulated pools of capital.

Following the sweeping banking reforms proposed last week by President Obama, and the fact that we are now halfway to this hypothetical future, I thought it might be worth doing a quick mark-to-market of how my ideas have lined up with reality.


  • stock exchange consolidation and emergence of new exchange venues (A-) pretty close both in outcomes and timing – the major stock exchanges have been merging a-go-go while at the same time new trading venues have proliferated, and exchange (or quasi-exchange) trading of new asset classes continues to develop strongly.
  • sports/outcome trading in US legitimized (B-) my narrative had this happening in February 2010, not there yet but Congressman Frank’s bill might open the doors later this year and the trend seems to be on the right track and will probably be signed into law by Obama (!); as an aside was way early on a Betfair IPO…
  • giant bank mergers followed by break-up of vertically integrated universal banks, with Goldman Sachs leading the way (A) we have seen the big get mostly even bigger (RBS/ABN, BoA/ML, Barclays/Lehman…and while JPMorgan didn’t buy MS, they did get Bear Stearns and WaMu); GS hasn’t yet broken itself into three as predicted but I’m still confident it will lead the way when/if industry structure changes, and more generally the trend of regulatory thinking across the globe is definitely a trailing wind for the kind of change I envisioned. The 2010-2012 timeframe for the re-organization of global banks is probably a bit early but plausibility has certainly gone up (from near zero) significantly since I wrote this.
  • more (and more) algorithmic / automated intermediation of markets (A-) this was obliquely referenced in my article but was really at the heart of the idea that this fictional ‘AmazonBay’ platform would end up dominating this aspect of markets; clearly the market is heading this way – in fact it may seem obvious now but most people did not fully understand this even as little as five years ago.
  • Amazon anything (B+) The jury is probably still out on this one, but in my view it is looking increasingly likely that will become a giant of the next economic paradigm; whether or not they use their vast intellectual and technological resources to participate more directly in the financial services arena is not yet clear, but I can tell you the only ‘big company’ job I would not hesitate for two minutes to accept if it were offered would be CEO or CSO of Amazon Financial Services (AFS) Jeff are you listening? 😉

(Note: Remember I used real company names mainly to add vividness to the ideas underlying the narrative. The key concept I wanted to convey with this GS break-up vignette was that the vertically integrated model would decompose under the light of new technology and regulations into a (technology-centric) Sales & Trading component, a more focused, relationship driven Advisory component (cf. the emerging proliferation of pure advisory ’boutiques’) and independent, conflict-free Asset Management businesses (cf. the secular growth of hedge funds and Barclays sale of BGI, etc.))

(February 2009:) …Reacting to new competition, Goldman Sachs becomes the first major investment bank to break itself up. Securities and distribution are sold to Ebay Financial Markets, while the remaining activities are split into two new companies: GS Advisory Services and GS Capital management…


  • eBay anything (D) Despite the fact that the actual companies cited are more symbolic than literal, the choice of eBay to represent the cutting edge of online, data-driven, algorithmic marketplaces was simply awful. To the extent that it risks distracting the viewer from the key, underlying messages. It is now entirely implausible and so instead of bridging the cognitive gap, the inclusion of eBay simply extends it. Thank goodness this is somewhat mitigated by my inclusion of (see above) as the other new markets avatar but they come late to the narrative…
  • sports trading developing as an asset class (C+) this clearly hasn’t happened, although there are one or two small funds and firms offering managed accounts; and a vibrant ecosystem of professional traders and the associated software has emerged around the Betfair and other exchange platforms. In my defense, I picked sports as just a provocative and emotionally attractive example of the idea that – enabled by technology – a vast array of new tradable markets in goods but also outcomes, would emerge. Work in progress.
  • credit crunch and asset bubbles (D) although the overall purpose of the piece was to provoke thinking on the sustainability of existing business models in financial services in the face of radically shifting underlying technological, economic and demographic trends, I failed to include a thread touching on the possibility of catastrophic systemic discontinuities arising as a result of the prevailing market structure and business models. It’s a significant ommission, especially as at the time of writing this I was in the process of exiting my former responsibilities as a senior executive in the credit business due in part to my increasing discomfort with the sustainability and prudence of the risk pricing in that market.

All in all, I would give myself a mid-term grade of B+/A- with room both to improve and to slip back. Mostly on the right track, especially with respect to big themes but perhaps a bit optimistic in terms of some of the timelines. What do you think? Better? Worse? To be fair, the correct measuring stick is not so much whether or not I was right or wrong, even in terms of ‘macro’ predictions but whether or not this article and video helped catalyze serious discussion, debate and thought about the potential for disruptive and non-linear change in the financial services industry. Alas I have no idea how one could even attempt to measure that, but any thoughts or anecdotes you might have with respect to this would of course be appreciated.

Through the Looking Glass (2005)

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  1. […] This post was mentioned on Twitter by Alexander Ainslie and Nauiokas Park, Nauiokas Park. Nauiokas Park said: NBP: AmazonBay report card, 5 years in/halfway home to 2015. […]

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  3. At 3:06 pm on 27 Jan 10 cerebralmastication said:

    The big surprise, at least to me, is Amazon's AWS. In retrospect it seems totally obvious. But 5 years ago I never would have come up with that business model. It fits into the AmazonBay story, but differently than I expected. Instead of Amazon being the seller of financial services they have built the platform and defined the business model on top of which the future in financial services will be built. They have made very little progress in the financial services space, but I am rooting for their Amazon Payments service ( I hope they kick Paypal right in the teeth and give the traditional credit cards a run for their money (quite literally). The payments business is still a LONG way from general financial services, but it is a move toward financial services.

    As with most forecasts I suspect you will go 5 more years and it will look like things are not going as fast as expected… then we'll hit the inflection point and things will move fast. I thought this current market trough was going to be the inflection point… but it does not seem that it will be. At least not yet.

  4. At 10:46 pm on 27 Jan 10 parkparadigm said:

    Totally agree. I think AWS is as important as Intel's microchip or Ford's production line or Edison's lightbulb. Etc. I remember when they launched it thinking this is huge. HUGE. But the markets sort of collectively shrugged their shoulders. Meh. Head faked me. Still think market totally underestimates value they are creating. Market cap is $50bn. Seems cheap to own AWS…makes you wonder what build/replacement cost would be. I guess more.

    Re inflection points I think again you might be correct. Might have been 3-5 years early on the whole scenario. Important for me to figure out how far in the future I'm living because otherwise you can get killed being too early and/or not patient on trades. I do feel the oscillations starting to grow in speed and amplitude, pre-quake tremors maybe. Worried about the baby boomers not letting go though, doing a Charlton Heston on us all and creating havoc as their institutions fail at increasing speed and violence, completely unfit for the world as it is today and tomorrow.

    Interesting times.

  5. At 11:09 pm on 27 Jan 10 cerebralmastication said:

    I can't figure out who is going to issue securities & M&A advice besides the old guard. That seems like the lynch pin of investment banking. As long as they are issuing equity/debt and advising M&A then there is huge entrenchment. There's also opportunity to trade on information flow which comes from being entrenched. So who's the challenger? Bill Hambrecht? I guess he's the obvious challenger.

  6. […] video which will look at the period from 2008 to 2028 in more detail; similar in some ways to the AmazonBay video of several years ago. The first draft of the script for this story is already written but I am very […]

  7. […] I haven’t had much time to write in the last few months, part of the unavoidable occupational hazards of building a business and a company, but I felt almost obliged to comment on the latest round of major financial exchange consolidation as the author of the 2005 “Amazonbay” video… […]

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